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Tips for Rebuilding Savings After COVID-19 Shutdown

June 17, 2020

Tips for Rebuilding Savings after COVID-19 Shutdown

As devastating as COVID-19 has been on Americans' health, it has been equally disruptive of people's financial plans and stability. Most Americans were likely unprepared for the attack on their savings after enjoying years of record stock market growth, low unemployment and a relatively steady cost of living. 

The COVID-19 pandemic changed all of that, wiping out any gains that people had realized and forcing many to dip deep into savings accounts and sending others into debt. Although market reports suggested that Americans, as a whole, were not doing a great job of saving even before the pandemic, the sudden loss of millions of jobs, wage cuts and severe stock market reactions to the COVID-19 crisis completely overturned any sense of financial stability. 

The government's intervention through stimulus checks and business loan forgiveness helped in the short-term, but some workers are still struggling to find their footing. As the stock market continues to recover and more companies reopen, however, there are now opportunities to get savings plans back on track. 

A good first step in resetting financial plans is to do a reality check. If there is less money coming in now and likely in the near future, it's time to adjust budgets and lifestyles. Major changes cold include downsizing a residence or car. smaller, yet measurable, changes can include things like continuing to stay at home for cooking and entertainment, rather than going out.

Financial planning experts agree that a priority must be made on rebuilding an emergency fund. Hopefully your family already had a rainy-day fund to help weather the recent storm. Whether you never had such a cushion or any emergency fund you had has been depleted due to recent events, it's important to be intentional in building and rebuilding savings accounts. Apply as much disposable income as possible to reducing debt as quickly as possible.

The easiest way is to make regular deposits, ideally through a payroll deduction program. In this way, the loss of disposable income is less noticeable. Set a time-frame as to when you realistically expect to have all of your debts paid off so you have a goal and plan. Be realistic with long-term financial goals and adjust them, as necessary, to align with financial realities. For example, if you planned on retiring in the next five years or starting a business next year, you may need to push back those timelines.

Here are some other recommendations for (re)building savings to be better prepared for the next rainy day:

  • Limit purchase of non-essential items until you have saved 3-6 months' worth of living expenses.
  • Compare yields on various savings plans to make sure you're getting the best return on your savings vehicles without taking on too much risk.
  • Refinance major purchases, such as a home, to take advantage of lower interest rates and possibly extend the length of time for payments.
  • If high-interest credit cards were used to finance expenses, consider consolidating this debt into a lower-interest loan (possibly a home equity loan).
  • Pay off debts with the highest interest rates first and then continue working downward.
  • Talk with lenders about leniency. Many banks, for example, have instituted short-term payment deferral programs to help relieve stress from financially strapped customers.
  • Use stimulus checks wisely. Don't think of them as free money but, rather, as opportunities to lower debt or make wise investments. 
  • Rethink vacation plans. You can still plan time away and create great family memories, but perhaps a driving vacation makes more sense now than flying somewhere.
  • Consider getting a second job. Despite a number of job losses in the market, there are many companies such as Amazon, grocery stores and fast food restaurants, that are desperate for workers. If possible, bank all of your income from this added revenue source and try to live on the wages from your main job only. 
  • Unload financial obligations that you no longer need. For example, think about terminating unused gym memberships or pricier phone or cable packages.
  • Sell items of value you're no longer using or which you don't absolutely need. Examples include motorcycles, boats, instruments, fitness equipment and the like.
  • Delay major purchases as long as possible, including getting a new car or remodeling the house.
  • Get creative with your living space. Is there a way to carve out space in the garage, basement or bonus room that could be rented out.

Most of us feel like we've been roughed up a bit -- emotionally and financially -- by the current COVID-19 pandemic. But with the right planning and diligence, it is possible to successfully emerge from this historic experience.

The information and recommendations contained herein is compiled from sources deemed reliable but is not represented to be accurate or complete. In providing this information, neither Cortland Bank or its affiliates are acting as your agent or is offering you any tax, accounting or legal advice. 

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